Iraq's first auction of contracts to develop its oil fields since the US-led invasion was not the bonanza for the oil industry that executives hoped, and has tempered eagerness to participate in future bid rounds.
Iraq closed the oil auction last night after awarding just one of the eight fee-paying contracts on offer, to a consortium led by British oil major BP.
For five of the fields, companies sought operating fees far above what Iraq was prepared to pay, prompting the government to ask bidders for the seven unawarded contracts to resubmit their proposals.
An official close to the process said these were then sent to the cabinet for consideration, without being made public.
For Western oil majors which have struggled to add new reserves in recent years - as the biggest reserves holders like Saudi Arabia and Russia keep their biggest fields for their state oil companies to develop - yesterday's auction offered an unrivalled opportunity.
Investors feared the companies might even have been prepared to agree to loss-making deals simply to gain a foothold in such a prolific area.
But in the end, the two sides differed wildly on the value of the opportunity on offer and largely stuck to their guns.
While the government said it was prepared to pay maximum fees of around $2/barrel for most contracts, some companies sought fees 10 times that level.
"It's a complete gulf, a chasm," said Alex Munton, Middle East analyst at Wood Mackenzie.
The $2/barrel fee - which BP accepted after initially pitching for $3.99/barrel - would make Iraqi barrels among the lowest margin barrels in the world.
Royal Dutch Shell Plc has said that it achieves a margin of $2 to $4 a barrel in the Niger Delta, $20 in the United States and $10 to $12 in the North Sea.
"The Iraqis have been pushing operators hard on costs and in some cases operators have preferred to walk away rather than accept an uneconomic solution," a source at one of the companies said.
Reuters