THE EVENT: The Iraqi government and numerous international oil companies failed Tuesday to agree financial terms for all but one of a series of new contracts to boost output at the country's existing oil and gas fields, resulting in the failure of seven out of eight of the tenders.

A consortium led by BP PLC (BP) and China National Petroleum Co. (0135.HK) won the first contract awarded, to boost output at Iraq's largest oil field, Rumaila, but consortia led by Exxon Mobil Corp. (XOM), Eni SpA (E), CNOOC Ltd. (CEO) and ConocoPhillips (COP) all rejected the Iraqi government's offers of payments for contracts on other fields, saying the prices were too low.

The Iraqi government concluded the bidding process and asked the companies to resubmit bids.

THE DETAIL: BP and CNPC initially asked the Iraqi government for a payment of $3.99 for each additional barrel of oil they can extract from the 17 billion barrel Rumaila field, but eventually accepted $2 a barrel from the government. The consortium plans to raise Rumaila's production from 1.1 million barrels of oil per day currently to 2.85 million barrels a day.

Other companies were unable to reach a compromise. ConocoPhillips rejected the government's offer of $4 per barrel of extra output from the Bai Hassan oil field, which was far below the $26.70 per barrel they were seeking.

The government's payment offers for the Missan, Zubair and West Qurna Phase 1 fields also were rejected by the companies due to similar gulfs in payment expectations between the two sides.

A joint Royal Dutch Shell PLC (RDSB.LN) and China Petroleum and Petrochemical Corp. (SNP) for the Kirkuk oil contract and an Edison SpA-led (EDN.MI) bid for the Akkas gas field were still under consideration when the bidding process concluded.

THE BACKGROUND: This is Iraq's first oil and gas field tender open to international companies in nearly three decades. The bid round is expected to boost output by 1.5 million barrels a day by improving recovery at massive fields deprived of the latest technology by years of sanctions and insecurity.

Iraqi Prime Minister Nouri al-Maliki stood by Oil Minister Hussein al-Shahristani and decided to go ahead with the bid round, despite growing internal opposition. Shahristani has been under fire from an oil and gas panel at the national parliament, which blamed him for a sharp decline in production from Iraq's oil fields in the south. The lack of success in Tuesday's bidding round will not strengthen his position.

Panel members also oppose any long-term involvement by international oil companies in the six producing oil fields - Rumaila, Kirkuk, Bai Hassan, Missan, West Qurna Phase 1 and Zubair, which are on offer under the first bidding round, as are the Akkas and Mansuriya gas fields.

According to the 20-year service contracts, oil firms would have a 75% stake in the joint venture, with state-owned Iraqi operators at the field holding the remaining 25%.

COMMENT:

"This is a bit crazy that their prices are so different to ours," one company official told the Wall Street Journal. "We didn't think they would be so tough."

The award of the Rumaila contract to BP and CNPC is a good starting point, said Edison Investment Research analyst Alessandro Pozzi. "They will establish a presence in the country and establish a relationship with the government," he said. In the future, if the Iraqi government offers foreign companies the right to develop new fields, "they can bid from a good position," he said.

"BP and its partner CNPC are very pleased to have participated in the transparent and efficient process today. We are looking forward to the next step towards finalising the service contract to increase production of the Rumaila field," said a BP spokesman.

-By James Herron in London and Hassan Hafidh in Baghdad, Dow Jones Newswires; +44 (0)20 7842 9317; james.herron@dowjones.com

(Gina Chon in Baghdad contributed to this article.)